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Take the Standard Deduction & the Home

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Now that the standard deduction is increased to $12,200 for single taxpayers and $24,400 for married ones, many homeowners are better off with the standard deduction than itemizing their deductions to write off their mortgage interest and property taxes.  There was some speculation that without the tax advantages, homeownership is not the investment it once was.By looking at the other benefits, you can see that homeownership is still one of the best investments people can make.A $275,000 home financed with a 4.5%, 30-year FHA loan would have an approximate total payment of $2,075.  The difference in the value of the home and the amount owed on the mortgage is called equity.  Two things cause equity to increase: the home appreciating in value and the principal loan balance being reduced with each payment made on an amortizing loan.In this example, if the home were appreciating at 2% annually, the value would increase by $5,500 the first year which would be $458.33 per month.  At the sa…

Understanding Reverse Mortgages

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Reverse mortgage loans are like traditional mortgages that permits homeowners to borrow money using their home as collateral while retaining title to the property.Reverse mortgage loans don't require monthly payments.The loan is due and payable when the borrower no longer lives in the home or dies, whichever comes first.Since no payments are made, interest and fees earned are added to the loan balance each month causing an increasing unpaid balance.Homeowners are required to pay property taxes, insurance and maintain the home, as their principal residence, in good condition.
Reverse mortgages provide older Americans including Baby Boomers access to their home's equity. Borrowers can use their equity to renovate their homes, eliminate personal debt, pay medical expenses or supplement their income with reverse mortgage funds.
Homeowners are required to be 62 years and older and meet the following requirements:
Own the home free and clear or owe very little on the current mortgage t…

Downsizing in 2020

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Approximately 52 million or 16% of Americans are age 65 and over.It is easy to understand that some of them are thinking of downsizing their home because they don't need the same space they did in the past.It can be liberating to divest yourself of "things" that have been accumulated over the years but are no longer needed.Moving to a less expensive home, could provide savings for unanticipated expenditures or cash that could be invested for additional income.Savings can be realized in the lower premiums for insurance and lower property taxes, as well as,  the lower utility costs associated with a smaller home.Typically, owners downsize to a home to 2/3 to 50% of their current home's size.In some situations, it is not only economically beneficial, but their interests may have changed so that a different style of home, area or city might fit their lifestyle better.The sale of a home with a lot of profit will not necessarily trigger a tax liability.Homeowners are eligi…

Another Source for a Down Payment

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Borrowing from a 401k, 403b or the cash value of life insurance policy is a common financial strategy.While taxpayers are not allowed borrow from either a traditional or Roth IRA, they can withdraw funds before age 59 ½ for specific purposes like a first home purchase, qualified higher education expenses or permanent disability without incurring a 10% penalty.First-time home buyers can make a penalty-free withdrawal of up to $10,000 if they haven't owned a home in the previous two years.This would allow a married couple who each have an IRA to withdraw a lifetime maximum of $10,000 each, penalty-free for a home purchase.In many cases, the money would be used for a down payment or closing costs.However, some buyers might consider this source to increase their down payment so they could qualify for a loan without mortgage insurance.There is another condition where a taxpayer can withdraw money from their IRA without triggering the tax or penalty if it is returned to the IRA within 6…

Anticipating the Cost of a Home

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The largest expenditure a buyer has when purchasing a home is the down payment which can range from zero for veterans or 3.5%, 5%, 10% and 20%.With mortgages come closing costs which can be another 2-4% and must be paid at settlement in cash.Most mortgages require an escrow account to pay the property taxes and insurance when they are due.Generally, the lender will require one to three months of taxes and one month of insurance so they can be paid before the actual due date.First-time buyers should be aware that they'll need this amount of funds available to purchase a home.  Unlike tenants who are not responsible for repairs, homeowners are, and it is necessary to be able to pay for them when they're needed.Newer homes will need less repairs and older homes probably, more.At some point, components like the furnace, air-conditioner and appliances will need to be replaced which could crush a homeowner's budget if they are not expecting them.Homeowners should expect between …

Personal Finance Review

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Even if Benjamin Franklin never actually used the expression "a penny saved is a penny earned", the reality is that it has been a sentiment for frugality for centuries.He did say: "Beware of little expenses; a small leak will sink a great ship."At the end of the day, it is not about how much you make as much as it is about how much you keep.The first step in a personal finance review is to discover where you are spending your money. It can be very eye-opening to have a detailed accounting of all the money you spend.Coffee breaks, lunches, entertainment, happy hour, groceries and the myriad of subscription services you have contribute to your spending.This revelation can lead you to obvious areas where savings can be accomplished.The next step is to dig a little deeper to see if there are possible savings on essential services.Get comparative quotes on car, home, other insurance. Review and compare utility providers.Review plans on cell phones.Consider eliminating t…

an Investment Perspective on a Home

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Looking for an investment that will turn $10,000 into $80,000 in seven years?Sound too good to be true?What if I told you that you could live in it every day during that seven years?Would that sound even better?A $300,000 home purchased today on an FHA loan would have a $10,500 down payment.If it appreciated at 2% annually, which is less than  the U.S. average, the future value of the home would be $344,606 in seven years.The unpaid balance on the loan would be $256,350 based on normal amortization which would make the equity in the home $88,256.The annual compound rate of return on the down payment would be 35%.This number sounds so large, that you might start doubting the credibility of this example.Looking at some alternative investments, a ten-year Treasury note is currently paying 1.73%.You can earn 2.1% on a ten-year certificate of deposit.If you could handle the volatility of the stock market and pick the right stock, you might earn 7-10%.There really is no alternative investme…